Jim Garven's Bloghttp://blog.garven.com
A blog exploring the intersection of finance, economics, risk, public policy, & life in generalFri, 12 Jan 2018 15:45:35 +0000en-UShourly1https://wordpress.org/?v=4.9.38910696The Stupidest Thing You Can Do With Your Moneyhttp://blog.garven.com/2017/07/28/the-stupidest-thing-you-can-do-with-your-money/
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I highly recommend this Freakonomics podcast (and transcript) about passive versus actively managed investment strategies. It provides historical context for the development of some of the most important ideas in finance (e.g., the efficient market hypothesis) and the implications of these ideas for investing in the long run. Along the way, you get to “virtually” meet with many of the best, brightest and most influential academic and professional finance thinkers who played important roles in shaping this history.

Prior to listening to this podcast, I was not aware of how a quip in a 1974 Journal of Portfolio Management article authored by the MIT economist Paul Samuelson inspired Vanguard founder Jack Bogle to launch the world’s first index fund in late 1975. Samuelson suggested that, “at the least, some large foundation should set up an in-house portfolio that tracks the S&P 500 Index — if only for the purpose of setting up a naive model against which their in-house gunslingers can measure their prowess.” (source: “Challenge to Judgment”, available from http://www.iijournals.com/doi/abs/10.3905/jpm.1974.408496).

Services that use algorithms to generate investment advice, deliver it online and charge low fees are pressuring the traditional advisory business. The shift has big implications for financial firms that count on advice as a source of stable profits, as well as for rivals trying to build new businesses at lower prices. It also could mean millions in annual savings for consumers and could expand the overall market for advice.

On March 2, 2017, roughly 100 of our 2500 students prevented a controversial visiting speaker, Dr. Charles Murray, from communicating with his audience on the campus of Middlebury College. Afterwards, a group of unidentified assailants mobbed the speaker, and one of our faculty members was seriously injured. In view of these unacceptable acts, we have produced this document stating core principles that seem to us unassailable in the context of higher education within a free society.

I am proud to be a member of the Heterodox Academy (see http://heterodoxacademy.org/). Heterodox Academy members are all professors who have endorsed the following statement:

“I believe that university life requires that people with diverse viewpoints and perspectives encounter each other in an environment where they feel free to speak up and challenge each other. I am concerned that many academic fields and universities currently lack sufficient viewpoint diversity—particularly political diversity. I will support viewpoint diversity in my academic field, my university, my department, and my classroom.”

]]>http://blog.garven.com/2017/03/07/on-the-importance-of-viewpoint-diversity/feed/05992Everything important to know about real world personal finance…http://blog.garven.com/2016/02/29/everything-important-to-know-about-real-world-personal-finance/
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The following set of fantastic (and ungated) personal finance articles appeared in today’s Wall Street Journal:

It is rare when I actually take the time to read Baylor’s student newspaper, the Baylor Lariat, and even rarer when I post a critical response to a Lariat article. However, I couldn’t resist commenting on an editorial from earlier this month entitled, “Baylor should implement class to ready students for real world”. In this editorial, the members of the Lariat editorial board opine that Baylor should require a one-hour credit “Life Skills” course in lieu of a basic math course such as “Ideas in Mathematics”. Basically, such a course would be designed to cover very basic personal finance principles, such as budgeting, paying off student loans, buying insurance, saving for retirement, etc. I think this is a manifestly bad idea; let me explain why.

While I am not aware of an empirical literature concerning mandated personal finance courses at colleges and universities, many states have experimented with personal finance and minimum math requirements at the high school level. A recent (2014) Harvard Business School working paper entitled “High School Curriculum and Financial Outcomes: The Impact of Mandated Personal Finance and Mathematics Courses” provides a thorough empirical analysis of personal finance and minimum math requirements and finds that mandated personal finance courses at the high school level do little to improve outcomes that are generally associated with financial literacy (e.g., such as building wealth through asset accumulation, prudent credit management, etc.), whereas “… individuals who were exposed to greater math requirements in high school are more likely to accumulate assets, have more real estate equity, are less likely to be delinquent on their loans, and are less likely to undergo foreclosure.”

Such a claim (based on so-called “technical analysis” (cf. https://en.wikipedia.org/wiki/Technical_analysis)) is total and utter nonsense. It would appear that the signal-to-noise ratio for this article specifically and much of CNBC content, in general, is close to zero.

The Bank of Japan’s (somewhat counterintuitive) stated goal for implementing it’s new (negative interest rate) policy is “…to push down borrowing costs to stimulate inflation”. While I certainly do not claim or pretend to be a monetary economist, a policy that punishes savers and rewards borrowers doesn’t seem like a particularly good script for long-term economic success. I think it’s a tacit acknowledgment that the Japanese economy is struggling with deflation. See https://www.boj.or.jp/en/announcements/release_2016/k160129a.pdf for the official policy statement issued by BOJ…

]]>http://blog.garven.com/2016/01/29/bank-of-japan-introduces-negative-interest-rates/feed/05978Misbehaving: The Making of Behavioral Economicshttp://blog.garven.com/2015/10/19/misbehaving-the-making-of-behavioral-economics/
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Myron Scholes Forum, October 13, 2015

Richard Thaler, Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at Chicago Booth, has spent his career studying the radical notion that the central agents in the economy are humans—predictable, error-prone individuals. He will discuss his latest book—Misbehaving: The Making of Behavioral Economics—in a Scholes Forum fireside chat, moderated by Steven Kaplan, Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at Chicago Booth.